Shailendra Swarup vs The Director, Enforcement ...
2009 Latest Caselaw 4681 Del

      * IN THE HIGH COURT OF DELHI AT NEW DELHI
%
                     Judgment Reserved on: 11th November 2009
                     Judgment Delivered on:18th November 2009

+                CRL.A. No.575/2008 and Crl.M.A.8045/2008

        SHAILENDRA SWARUP                          ..... Appellant

                          Through:    Mr.Rajiv Bansal, Mr.K.K.Patra
                                      and Mr.Shivendra Swarup,
                                      Advocates.
                     versus

        THE DIRECTOR, ENFORCEMENT DIRECTORATE
                                          ..... Respondent

Through: Ms. Rajdipa Behura and Ms.Deepti Sharma, Advocates.

CORAM:

HON'BLE MS. JUSTICE INDERMEET KAUR

1. Whether the Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporter or not? Yes

3. Whether the judgment should be reported in the Digest? Yes

INDERMEET KAUR, J

1. M/s Modi Xerox Limited was a company incorporated under

the Indian Companies Act 1956, in the year 1983; 17 remittances

were made by this company through its banker Standard

Chartered Bank wherein foreign exchange has been released for

import of certain goods for which the exchange control copy of

the bill of entry had not been submitted either to the authorised

dealer or to the Reserve Bank of India. This was during the

period 12.6.1985 to 21.11.1985.

Crl.A.575/2008 page 1 of Page 9

2. On 19.2.2001 show cause notice/memorandum had been

issued by the Enforcement Directorate to 21 persons including

the present petitioner who has been arrayed as respondent

no.12 i.e. Shailendra Swarup to show cause as to why

adjudication proceedings as contemplated in Section 51 of the

Foreign Exchange Regulation Act, 1958 (hereinafter referred to

as the FERA) be not initiated. On page no.3 of the said

document while enumerating the names of noticee's as per

annexure B it had been averred that the said persons, including

present petitioner has been responsible/supervisor/incharge of

the said company/firm for the conduct of the business of the

firm/company at the relevant time when the aforestated import

was made as such he/she/they has/have rendered

himself/herself/themselves liable to be proceeded against under

Section 50 of the FERA. The last page of the document specified

that the notice has been addressed to the company arrayed as

No.1 and the present petitioner Shailendra Swarup arrayed as

No.2.

3. Reply to this notice was returned on 26.3.2001. This reply

was given by the company through Mukesh Dugar, its Company

Secretary. The allegations in the show cause notice had been

refuted; it was averred that the adjudication proceedings be

dropped as the transactions are more than 15 years old and it

would be inequitable to continue with these proceedings, being

against the principles of natural justice. Para 8 of the reply had

detailed the list of directors of the company at the relevant time

Crl.A.575/2008 page 2 of Page 9 which included the name of the present petitioner Shailendra

Swarup at serial No.9. It is relevant to state that there was no

averment made in this reply that the present petitioner was not

a full time director or was not incharge of the affairs of the

company.

4. On 4.7.2003 Mukesh Dugar, Company Secretary, attested

an affidavit stating therein that the company Modi Xerox Limited

had since merged with Xerox Modi Corporation Limited.

Mr.Shailendra Swarup who was the Director of the Modi Xerox

was only a part time director and was never Incharge of the day

to day business of the company.

5. Notice of the adjudication proceedings was issued on

8.10.2003.

6. Reply to this notice was given by the present petitioner on

29.10.2003 wherein for the first time it had been averred that

the petitioner Shailendra Swarup is a practising Advocate and

was only a part time Non-Executive Director of Modi Xerox

Limited; he was never incharge of or responsible for the conduct

of the business of the company.

7. The Adjudication Proceedings culminated in the order

dated 31.3.2004. The submissions of the present petitioner had

been noted on internal page 18 of the said order. The present

petitioner along with four other persons were held guilty for

having contravened the provisions of Section 8(3) read with

Section 8(4) and Section 68 of the FERA; penalty of Rs.1 lac was

imposed upon each of them.

Crl.A.575/2008 page 3 of Page 9

8. This Adjudication Order had become the subject matter of

an appeal before the Appellate Tribunal. The Appellate Tribunal

vide impugned order dated 26.3.2008 had upheld the order of

adjudication. The submission of the present petitioner that he

was a part time Director was rejected. No modification was

made in the penalty imposed either.

9. This Court is seized of the appeal which has been filed

against the order of the Appellate Tribunal dated 26.3.2008.

10. On behalf of the petitioner, it has been urged that

there was not an iota of evidence before the Appellate Tribunal

to draw the conclusion that at the time when the contravention

was committed the petitioner was incharge of and was

responsible to the company for the conduct of the business of

the company; in the absence of this necessary ingredient not

having been prima facie established either before the

Adjudicating Authority or before the Appellate Tribunal;

provisions of Section 68(1) are not satisfied; no penalty could

have been imposed upon the present petitioner. The Courts

below had failed to appreciate that the petitioner is a practicing

Advocate, under Section 48 of the Bar Council Rules, he is not

permitted to have a whole time interest in a company. There is

also no explanation as to why pick and choose policy was

adopted by the Adjudicating Authority and the Appellate

Tribunal; as to why and how only five persons had been nailed

out of 13 so-called directors of the company; present petitioner

had no financial stakes in the company; he was in his

Crl.A.575/2008 page 4 of Page 9 professional capacity imparting legal advice only; he could not

have been roped in; the Courts below have also failed to

appreciate that the Company Secretary had on affidavit

specifically averred that the present petitioner was only a part

time Director.

11. Attention has also been drawn to an order dated 13.2.2004

passed by the Special Director of the Enforcement Directorate

wherein the plea of the petitioner that he was only a Non-

Executive Director of M/s Xerox Modi Corporation Ltd. had been

accepted. It is submitted that the Special Director is a person

who is superior in rank to a Deputy Director; the adjudicating

order had been passed by a Deputy Director; the finding of a

superior officer has to hold good against a finding of an inferior

officer; on this analogy as well it is clearly established that the

petitioner was only a part time Director of the company.

12. It is relevant to state that this order makes reference to

certain remittances which were made for the period 1.12.1993 to

13.6.1999. The subject matter of the present proceedings relate

to remittances having been made during the period 12.6.1985 to

21.11.1985. In this view of the matter, it is clear that this order

cannot and would not have any application to this argument

propounded by the petitioner.

13. Learned counsel for the petitioner has placed reliance upon

judgments of Supreme Court reported in (2005) 8 SCC 89 SMS

Pharmaceuticals Ltd. vs. Neeta Bhalla & Anr. and (2007) 9 SCC

481 N.K.Wahi vs. Shekhar Singh & Ors. to substantiate his

Crl.A.575/2008 page 5 of Page 9 submission that to launch a prosecution against the alleged

directors, there must be a specific allegation in the complaint as

to the part played by them in the transaction; there should be a

clear and an unambiguous allegation as to how the directors are

incharge of and responsible for the conduct of the business of

the company; in the absence of any specific averment the net

result would be that the complaint would not be entertainable. It

is further submitted that the provisions of Section 138 of

Negotiable Instruments Act are almost para materia to Section

68(1) of the Companies Act; it is only those category of persons

who are Incharge of and responsible to the company for the

conduct of the business of the company shall be deemed to be

guilty of the offence. It is submitted that the liability can be cast

only on those persons who have something to do with the

transaction; mere use of a particular designation of an officer

without more may not be enough. Reliance has also been

placed upon a judgment reported in (1978) 48 Comp. Cases 85

Om Prakash Khaitan vs. Shree Keshariya Investment Ltd. It is

submitted that the present petitioner who is a full time Advocate

had agreed to be appointed as a director of the company only to

give a favourable projection to the management of the company;

he was on the board only by virtue of his technical skill; he had

no financial stakes in the company; he could not have been

made liable for the breaches and the fault of the company.

14. Arguments have been rebutted by the learned counsel for

the Enforcement Directorate. It is pointed out that the

Crl.A.575/2008 page 6 of Page 9 propositions of law as argued by the learned counsel for the

petitioner are not in dispute; it is submitted that the present

proceedings are adjudication proceedings in which there is no

formal complaint; as such the submissions of the learned counsel

for the petitioner that there should have been a specific

averment that the petitioner was in charge of the day to day

affairs and the conduct of the business of the company in the

complaint is a mis-understanding of the procedure; in

adjudication proceedings there is no formal complaint. Attention

has been drawn to the Adjudication Proceedings and Appeal

Rules 1974 which Rules have been formulated under the powers

conferred under Section 79 of the FERA. Rule 3(2) reads as

follows:

S.3 Adjudication proceedings:

"(1) ............................................................. (2)Every notice under sub-rule (1) to any such person shall indicate the nature of offence alleged to have been committed by him. ........................................."

Further these rules which have a statutory force clearly indicate

that it is only the nature of offence alleged to have been

committed which has to be indicated in the notice and no more.

15. Perusal of the record shows that the contravention for

having violated the provisions of Section 8(3) & (4) of the FERA

relate to the period 12.5.1985 to 21.11.1985. The show cause

notice dated 19.2.2001 apart from the 21 persons mentioned in

annexure B, was specifically addressed to the company who was

arrayed as No.1 and the present petitioner Shailendra Swarup

arrayed as No.2. This show cause notice/memorandum had

stated that the persons arrayed therein were responsible and

Crl.A.575/2008 page 7 of Page 9 Incharge of the conduct of the business of the company at the

relevant time when the import was made and as such rendered

himself liable to be proceeded against under Section 50 of the

FERA.

16. The reply given by the company signed by the Company

Secretary Mukesh Dugar is dated 26.3.2001. The Company

Secretary has detailed the names of 13 persons as Directors of

the company at the relevant time which include the present

petitioner Shailendra Swarup. This reply had requested for a

personal hearing; as already discussed supra; this reply has

nowhere stated that the present petitioner was only a part time

Director.

17. It was only as an afterthought and later on that the

petitioner in his subsequent reply dated 29.10.2003 took up a

plea that he was only a part time director and relied upon an

affidavit dated 4.7.2003 of the Company Secretary Mukesh

Dugar which even otherwise does not appear to have been filed

either before the Adjudicating Authority or the Appellate

Tribunal. No such plea had been taken in any of the earlier

communications.

18. Judgment relied upon by the learned counsel for the

petitioner lays down the undisputed proposition of law that in

order to penalise a Director of a company under criminal law it

must be specifically averred that the said Director was in charge

of the affairs of the company and responsible to it for conduct of

its business at the time of commission of the offence. This

Crl.A.575/2008 page 8 of Page 9 proposition is not in dispute and in fact is accepted by the

learned counsel for the Department. There is also no dispute

that the provisions of Section 141 of Negotiable Instrument Act

are more or less para materia the provisions of Section 68 of the

FERA; both of which deal with offences by a company. In (2005)

8 SCC 89 SMS Pharmaceuticals Ltd. vs. Neeta Bhalla & Anr., it

has been held by the Supreme Court that to make an officer of a

company liable there are two mandatory requirements to be

fulfilled :-

i. It should be stated that the persons sought to be arrayed as accused apart from a company was a person in charge of and responsible for the conduct of the company

ii. Such a person was in that capacity at the time of the commission of the offence.

19. In the present case the record reveals that this was an

admission by the company itself through its Company Secretary

in the reply dated 26.3.2001 wherein it was stated that the

present petitioner is a director of the company. This was an

answer to the specific averment made in the show cause notice

that Shailendra Swarup was Incharge of the affairs of the

company and responsible to it for the conduct of its business.

This finding of the Adjudicating Authority was not faulted with by

the Appellate Tribunal and rightly so.

20. There is no merit in the appeal. It is dismissed.

                                               (INDERMEET KAUR)
                                                     JUDGE

NOVEMBER 18 , 2009
nandan



Crl.A.575/2008                              page 9 of Page 9